Media captionBaroness Tanni Grey-Thompson, Baroness Tonge and Margot James MP tell the BBC's Norman Smith what they think of the outcome

The government has been defeated in the Lords in a vote on its plans for a £26,000-a-year household benefit cap.

Lib Dem, Labour and crossbench peers backed a bishop's amendment by 252 to 237 that child benefit should not be included in the cap.

Critics argued that imposing the same cap on all families, regardless of size, would penalise children.

The government said it was "very disappointed" and the vote "clearly flies in the face of public opinion".

Earlier the government defeated another amendment proposed by Labour to exempt people considered at risk of homelessness from the cap.

Analysis

By Gary O'DonoghuePolitical correspondent, BBC News

If implemented in its current form, the government's benefit cap will save £290m next year, with 67,000 families losing on average £83 a week.

It's not a vast amount of money in the context of a welfare budget that runs to tens of billions of pounds, but its significance goes wider for the government.

First, ministers believe that they are in the same place as a significant portion of public opinion.

Second it reinforces the government's central policy aim of getting more people off benefits and into work by, they would say, encouraging a change in behaviour.

Thirdly it puts pressure on Labour, who know they can't oppose the cap outright, but have ended up having to criticise the implementation, a much less clear-cut position.

For the Lib Dems, this is difficult.

They believe their role is to soften Tory zeal when it comes to the benefits system.

Picking a fight, along with the bishops, also helps to create the fabled "definition" the party needs to secure its identity.

But if no real concessions are wrung, then they could end up looking impotent.

The annual cap would come into force for working age families in England, Scotland and Wales from 2013.

The government was defeated three times on votes on other parts of its flagship Welfare Reform Bill two weeks ago.

But Work and Pensions Secretary Iain Duncan Smith has said any defeats will be overturned when the legislation returns to the Commons.

The amendment on child benefit was put down by Bishop of Ripon and Leeds, the Rt Rev John Packer.

He said child benefit was "a universal benefit" and it was "wrong to see it as being a welfare benefit".

"It's a benefit which is there for all children, for the bringing up of all children and to say that the only people who cannot have child benefit are those whose welfare benefits have been capped seems to me to be a quite extraordinary argument."

He said the cap "failed to differentiate between households with children and those without" and child benefit was "the most appropriate way to right this unfairness".

But Mr Duncan Smith said excluding child benefit would make the cap "pointless" - as it would raise the amount families could receive to an average of about £50,000 a year.

He said he wanted to be "fair" to taxpayers on low wages, who were supporting families in homes they themselves could not afford.

Homelessness

Enver Solomon, policy director at The Children's Society, said it was "delighted" with the results of the vote, arguing it was "totally unfair that a small family with a household income of £80,000 a year receive it, yet a large family with a benefit income of £26,000 are excluded".

Welfare Reform Bill

Has completed its Commons stages and is now in the Report (penultimate) stage in the Lords

Ministers have already said they they will overturn Lords defeats in Commons

Unless and until agreement on differences is reached the bill is likely to "ping-pong" between the Lords and Commons

"The government must not ignore the fact that the Lords have spoken out to defend the plight of some of the country's most disadvantaged children," he said.

The Centre for Social Justice, a think tank set up by Mr Duncan Smith in 2004, said the result was "peculiarly out of line with public opinion".

Executive director Gavin Poole said: "Opponents in the House of Lords have missed a crucial opportunity to support the benefit cap, a policy which would bring about positive welfare reform."

Labour said its peers would support the bishop's amendment after their own was rejected by 250 votes to 222.

The Labour amendment would have exempted people who would be considered "threatened with homelessness" under the cap - and obliged to be rehoused by their local council.

In the Commons, Mr Duncan Smith accused the Opposition of saying they were in favour of a cap on benefits - while tabling a "wrecking amendment".

"They can't weasel their way out of it and say they are in favour on the one hand and against on the other," he said.

Labour says it supports the cap, but as it stands it could end up costing the taxpayer more if 20,000 families have to be rehoused.

'Transitional arrangements'

Benefit cap proposals

From April 2013, the total amount of benefit that working-age people can receive will be capped so households on out-of-work benefits will not receive more than the average household weekly wage.

Applies to combined income from the main out-of-work benefits - Jobseeker's Allowance, Income Support, and Employment Support Allowance - and other benefits such as Housing Benefit, Child Benefit and Child Tax Credit, Industrial Injuries Disablement Benefit

Exemptions for households in receipt of Working Tax Credit, Disability Living Allowance or its successor Personal Independence Payment, Constant Attendance Allowance and war widows and widowers.

Forecast to save £290m in 2013-14 and £330m in 2014-15.

The cap would be £500 a week - equivalent to the average wage earned by working households after tax - for families and £350 a week for single adults without children.

On Monday the government revised up its estimate of how many households would be affected - from 50,000 to 67,000, although the amount of money they would lose was revised down from £93-a-week to £83-a-week. More than half of those affected live in London.

There have been suggestions that some "transitional arrangements" could be introduced for families affected by the cap.

Mr Duncan Smith said most of those affected were people who had never worked - and had no incentive to do so because they were living in expensive properties which they would have to move out of if they lost their housing benefit entitlement.

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Media captionBishop of Ripon and Leeds, the Rt Rev John Packer: "It is wrong to see child benefit as being a welfare benefit"

He has rejected suggestions children could be pushed into poverty by the cap or that some families would be left homeless.

Former Lib Dem leader Lord Ashdown said he would vote against the plans unless there were measures to cushion the impact on those affected.